Asian reserves shrink $119 bln as central banks defend forex

Asian holdings of foreign exchange reserves, excluding those of China's, shrank $119 billion in October, central bank data showed, as the authorities tried to defend their currencies amid an emerging market rout. The decline was led by a $38.9 billion plunge in India's holdings and a drop of $27.4 billion in South Korea's. Foreign investors, including hedge funds, have been forced to pull out from Asia's stock and bond markets to raise cash for their operations beleaguered by the U.S. financial crisis. Foreign investors have sold $63 billion worth of shares in Asia ex-Japan so far this year, led by the sale of $33 billion in South Korea, nearly $14 billion in Taiwan and almost $12 billion in India, according to Nomura. That weighed on Asian currencies, led by the South Korean's won's 30 percent fall against the dollar this year. "The market volatility came through in October, that led to a significant drawing down in foreign exchange reserves in a number of countries," said Nicholas Bibby, senior regional economist at Barclays Capital. Asian holdings of foreign exchange reserves, excluding those of China's, shrank $119 billion in October, central bank data showed, as the authorities tried to defend their currencies amid an emerging market rout. The decline was led by a $38.9 billion plunge in India's holdings and a drop of $27.4 billion in South Korea's. Foreign investors, including hedge funds, have been forced to pull out from Asia's stock and bond markets to raise cash for their operations beleaguered by the U.S. financial crisis. Foreign investors have sold $63 billion worth of shares in Asia ex-Japan so far this year, led by the sale of $33 billion in South Korea, nearly $14 billion in Taiwan and almost $12 billion in India, according to Nomura. That weighed on Asian currencies, led by the South Korean's won's 30 percent fall against the dollar this year. "The market volatility came through in October, that led to a significant drawing down in foreign exchange reserves in a number of countries," said Nicholas Bibby, senior regional economist at Barclays Capital. "Because of deleveraging by global banks, certainly in the case of South Korea we saw the Bank of Korea becoming much more active in stepping in and provide liquidity to the market," he said. South Korean authorities injected at least $12.7 billion in October to ease a dollar crunch in the domestic money market. Asia's overall holdings of foreign exchange reserves, including China's holdings until September, reached $4.2 trillion last month, still up 8 percent from the end of 2007, data showed. But Pakistan's reserves plunged 57 percent during the period, followed by a 23 percent drop in South Korea's holdings. China, holder of the world's largest reserves, releases data at the end of every quarter. Analysts expect the rise in China's reserves, which swelled by $96.8 billion in the third quarter to a record $1.9 trillion, would slow as exports and capital inflows lose steam. "Because of deleveraging by global banks, certainly in the case of South Korea we saw the Bank of Korea becoming much more active in stepping in and provide liquidity to the market," he said. South Korean authorities injected at least $12.7 billion in October to ease a dollar crunch in the domestic money market. Asia's overall holdings of foreign exchange reserves, including China's holdings until September, reached $4.2 trillion last month, still up 8 percent from the end of 2007, data showed. But Pakistan's reserves plunged 57 percent during the period, followed by a 23 percent drop in South Korea's holdings. China, holder of the world's largest reserves, releases data at the end of every quarter. Analysts expect the rise in China's reserves, which swelled by $96.8 billion in the third quarter to a record $1.9 trillion, would slow as exports and capital inflows lose steam.